Consumers’ Outlooks on U.S. Economy Improve to Five-Month High

May 16 (Bloomberg) -- Consumers’ economic outlook improved in May to its best reading in five months, showing Americans are looking beyond the current slowdown to a rebound in growth later this year.

The monthly Bloomberg consumer economic expectations gauge rose to minus 1 from minus 4 in April, a report today showed. The weekly Consumer Comfort Index slipped to minus 30.2 for the period ended May 12 from minus 29.5 the prior week, hovering around a five-year high reached at the end of last month.

Rising home values and stock prices gains may be underpinning expectations and bolstering consumer spending, which accounts for about 70 percent of the economy. Nonetheless, the lagged effect of higher payroll taxes are crimping the discretionary budgets of low- to middle-wage earners, preventing total demand from accelerating.

"It reflects a broader stabilization of the labor market and greater confidence in household economic expectations," said Joseph Brusuelas, a senior economist at Bloomberg LP in New York. "Should consumers continue to demonstrate an increase in confidence, they’ll likely slow the rebuilding of savings and continue to spend a bit more."

A report today from the Labor Department showed more Americans than projected filed applications for unemployment benefits last week. Jobless claims jumped by 32,000 to 360,000 in the week ended May 11, exceeding all forecasts in a Bloomberg survey and the most since the end of March.

Housing Starts

The Commerce Department said starts of new homes fell more than forecast in April to a five-month low, indicating a pause in the industry’s progress as builders slowed work on apartments. Starts slumped 16.5 percent, the most since February 2011, to an 853,000 annualized rate. Building permits surged to an almost five-year high.

Stocks declined after the figures. The Standard & Poor’s 500 Index, which extended a record yesterday, decreased 0.1 percent to 1,656.58 at 9:37 a.m. in New York.

One of the three components of the comfort index climbed last week while two fell.

The index measuring consumers’ views on their personal finances climbed to 1.8 from 0.8, the fifth straight positive reading.

The gauge assessing Americans’ views on the current state of the economy was little changed at minus 57.9 compared with minus 57.8 the prior week. Today’s report also showed the index of buying conditions declined to minus 34.6 from a more than five-year high of minus 31.5.

Payroll Taxes

That may reflect a higher payroll tax rate, which is eating into consumers’ finances. At the beginning of 2013, the levy used to finance Social Security reverted to its 2010 rate of 6.2 percent after holding at 4.2 percent for two years. That cost about $80 per month for households earning $50,000 a year.

Still, a housing-market recovery and advances in equity prices are boosting household wealth and could prove a boon to consumer spending.

Residential real-estate prices rose in February by the most since May 2006, with the S&P/Case-Shiller index of house values in 20 cities up 9.3 percent from a year ago. U.S. stocks are being helped by record stimulus by the Federal Reserve, and the S&P 500 index has gained 16.3 percent this year through yesterday.

The labor market is also adding jobs, albeit at a slower pace. Payrolls in April climbed by 165,000 workers, the Labor Department said, after revised gains of 138,000 jobs in March and 332,000 in February.

"We now expect industry retail sales of turf and utility equipment in the U.S. and Canada to be flat to down slightly in 2013, reflecting the cool, wet spring in North America and cautious consumer sentiment," Susan Karlix, director of investor relations, said in a May 15 earnings call.

Among age groups, 35 to 44 year-old consumers are the most confident, with their index jumping last week to minus 10.7, the highest reading since mid-October 2007, from minus 17.5.

Sentiment rose to its highest level since December 2007 among political independents, climbing to minus 26.1. It has slipped to late-February levels among Democrats, at minus 28.9. Republicans are at minus 34.7.

The comfort reading is at its worst since February among 18 to 34 year-old Americans, renters and single adults.

The Bloomberg Consumer Comfort Index, compiled by Langer Research Associates in New York, conducts telephone surveys with a random sample of 1,000 consumers ages 18 and older.

Each week, 250 respondents are asked for their views on the U.S. economy, personal finances and buying climate. The percentage of negative responses is subtracted from the share of positive views and divided by three. The most recent reading is based on the average of responses over the previous four weeks.

The comfort index can range from 100, indicating every participant in the survey had a positive response to all three components, to minus 100, signaling all views were negative.

--Editors: Carlos Torres, Vince Golle

To contact the reporter on this story: Jeanna Smialek in Washington at jsmialek@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net